Hunter is a single 45-year-old who is employed by an engineering firm that includes a diverse array of taxable and nontaxable fringe benefits within the overall compensation package it offers its employees. Employees receive a base salary in addition to occasional incentive awards (i.e. bonuses); the incentive awards are often in the form of noncash perks. The company also offers different forms of equity-based compensation to reward its highest performing employees.

Hunter does not itemize deductions, and he does not have any available tax credits or estimated tax payments. His employer withheld $23,668 from his paychecks for income tax withholding.

Hunter's base salary for calendar-year 2018 was $101,350. He embarked on an all-expenses-paid 5-day Caribbean cruise in April 2018, which he received from his employer in lieu of a cash bonus. The cruise and related travel expenses would have cost Hunter $4,025 if had paid for the trip out-of-pocket. His employer agreed to give Hunter an extra $1,375 in cash to cover his tax liability on the value of the cruise (referred to as a "tax gross-up"). Tax gross-up payments are included on an employee's paycheck as ordinary wages subject to income and payroll taxes.

Hunter also took advantage of the following pre-tax payroll deductions:

• Annual employee contribution to employer's 401(k) qualified plan = 6% * $101,350 base salary = $6,081/year (his employer provides a 75% match as well, i.e. $4,560.75/year)
• Annual employee contribution to a flexible spending account ("FSA") = $2,400/year
• Annual employee contribution to health insurance plan = $1,440/year

A summary of the above-mentioned compensation details is provided in the following table:

Description	2018 Amount
Base salary	$101,350
Non-cash incentive award - all-expenses-paid cruise vacation	$4,025
Tax gross-up for the non-cash incentive award	$1,375
Payroll deduction - Employee 401(k) contributions	$6,081
Payroll deduction - Employee FSA contributions	$2,400
Payroll deduction - Employee portion of insurance premiums	$1,440
Income taxes withheld from paychecks	$23,668

Hunter is a highly-valued engineer at the company and thus has been rewarded quite handsomely the past few years with several equity-based compensation awards. In 2018 Hunter decided to sell 4,360 shares of stock that he received pursuant to the terms of these awards.

Type of Equity Award	Section 83(b) Election?	Number of Options/Shares Granted	Grant Date	FMV/share @ Grant (Exercise Price)	Vest Date	FMV/Share @ Vest	Exercise Date	FMV/Share @ Exercise	Number of Shares Sold	Sale Date	Sales Proceeds per Share
Restricted Stock	Yes	610 shares	1/1/2016	$9.50	1/1/2018	$11.75			610	5/1/2018	$17.50
Restricted Stock	No	950 shares	1/1/2017	$11.30	1/1/2018	$11.75			950	5/1/2018	$17.50
Restricted Stock	Yes	1,225 shares	1/1/2018	$11.75	1/1/2019	$10.90
Nonqualified Stock Options		100 options - 7 shares per option	1/1/2016	$9.50	1/1/2017	$11.30	1/1/2017	$11.30	700	5/1/2018	$17.50
Nonqualified Stock Options		200 options - 7 shares per option	1/1/2017	$11.30	1/1/2018	$11.75	1/1/2018	$11.75	1,400	5/1/2018	$17.50
Incentive Stock Options		100 options - 7 shares per option	1/1/2016	$9.50	1/1/2017	$11.30	1/1/2017	$11.30	700	5/1/2018	$17.50
Incentive Stock Options		200 options - 7 shares per option	1/1/2017	$11.30	1/1/2018	$11.75	1/1/2018	$11.75

In addition to his base salary, incentive award and equity-based compensation, Hunter also received the following taxable AND non-taxable fringe benefits from his employer during 2018:

Fringe Benefit	Description	Company's Annual Cost	Hunter's Annual Cost
Health insurance	The company offers health insurance* to all employees. The monthly premium for each employee is $300, of which the company pays 60% and the employee pays 40% via a pre-tax payroll deduction. *Hunter elected to receive health insurance coverage for 2018.	$2,160/year	$1,440/year
Accidental death and dismemberment ("AD&D") insurance	The company provides AD&D insurance to all employees, free-of-charge.	$180/year	$0
Fitness facility membership	The company offers a fitness facility membership* to all employees, free-of-charge. The fitness facility is not located on the company's business premises and is open to the general public. *Hunter elected to receive a membership in the fitness facility for 2018.	$816/year	$0
Employer-provided cell phone	The company provides all engineers with a company phone, due to frequent after-hours client calls as well as the significant number of clients residing outside of the United States. Employees are not allowed to use their company phone to make personal calls.	$444/year	$0
Basic group-term life insurance policy	The company provides group-term life insurance ($50,000 policy) to all employees, free-of-charge.	$90/year	$0
Supplemental group-term life insurance policy	The company offers supplemental group-term life insurance* to all employees. The supplemental life insurance coverage employees can elect is capped at 8 times their base salary or $500,000, whichever is lower. *Hunter elected to receive the maximum allowable $500,000 in supplemental life insurance for 2018.	$900/year	$240/year
Employer-provided meals	The company provides catered lunches to all employees on Mondays and Wednesdays, free-of-charge. The meals are furnished for the convenience of the company and are provided on the company's business premises.	$1,352/year	$0
Qualified parking	The company provides qualified parking access at a parking garage located on the company's business premises to all employees, free-of-charge.	$3,900/year ($325/month)	$0

When Hunter was hired by his company several years ago, he was required to complete Form W-4 "Employee's Withholding Allowance Certificate". He followed the guidance provided in the "Personal Allowances Worksheet" and

decided to claim two (2) allowances on his Form W-4. He has not changed his election of 2 allowances since he was initially hired (although he is not precluded from doing so at any point during the year).

For 2018, one (1) withholding allowance reduces an employee's taxable wages by $4,150 (this amount is adjusted each year by the IRS).

Employers compute an employee's federal income tax withholding using the formula below and report it on Form W-2 Box 2.

W-2 Box 1 wages - $8,300 (2 allowances * $4,150/allowance) = Net taxable wages * tax (computed using withholding tax tables updated annually by the IRS) = Federal income tax withholding

Hunter's employer withheld federal income taxes of $23,668 from his paychecks. Hunter's 2018 Form 2040 showed a $3,273 income tax liability owed to the IRS.

QUESTION: If Hunter had chosen zero (0) withholding allowances instead of two (2) when he was hired, how much would he have owed on his 2018 Form 1040 instead of the $3,273 he actually owed? Use Hunter's marginal tax rate

of 24% for your analysis. Your answer should represent the total revised tax amount (NOT the variance between the revised and actual tax amounts owed). Round your answer to zero decimal places.

*Hint - as withholding allowances increase, the amount of federal income tax withheld from an employee's paycheck will decrease, which in turn will increase the amount of taxes owed on Form 1040 (and vice versa).